Texas Supreme Court Rules Against Aetna

At issue is whether the Medicare Act requires health care providers, like hospitals, that do not have a contract with a managed care insurer, like Aetna, to use the Medicare administrative appeals process on coverage questions before suing to recover from the insurer.

Aetna has refused to pay as much as $13 million for Medicare patients' treatment after the insurer's contract management company -- North American Medical Management of Texas, or NAMM -- became insolvent, according to a court brief. The management company had the contracts with the hospitals to pay claims for Medicare patients enrolled in Aetna's HMO.

The trial court dismissed the case on Aetna's argument that hospitals must first go through Medicare administrative hearings. The court of appeals affirmed the trial court's decision.

But Friday the Texas Supreme Court held that an administrative process is not required, reversing the appeals court's decision and remanding the case to the trial court to determine Aetna's contractual obligations to the hospitals.

In reaction to the ruling, Aetna said it cannot be held responsible for NAMM's obligations.

The company pointed out in an e-mail that the lawsuit stemmed from the alleged failure of NAMM to reimburse the plaintiff hospitals for services rendered to Medicare beneficiaries enrolled in NYLCare plans. NYLCare, however, had paid agreed upon amounts to NAMM for such services, and the hospitals had contracted directly with NAMM, according to Aetna.

"This decision does not address the merits of the hospitals' claims in any way," said Aetna spokeswoman Cynthia Michener in an e-mail. "Rather, it simply allows the trial court to determine whether Aetna can be held responsible, if at all, for the alleged claims. Aetna strongly maintains that it cannot be held liable for NAMM's obligations, and that it will ultimately prevail on the merits."

Attorney Scott Clearman of Houston-based McClanahan & Clearman, who represents the five hospitals, said the ruling means hospitals providing Medicare-related services can seek reimbursement in state court without first being forced to pursue costly and time-consuming federal administrative reviews.

The petitioners in the case included Christus Health Gulf Coast, Christus Health Southeast Texas, Gulf Coast Division Inc., Memorial Hermann Hospital System and Baptist Hospitals of Southeast Texas.

Shares of Aetna rose 44 cents to close at $50.91.